Gold is picking up some momentum again after a nasty downturn, and investors who have been waiting on the sidelines are wondering which miners might be attractive right now.
Let’s take a look at Kinross Gold Corporation (TSX:K)(NYSE:KGC) and Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) to see if one should be on your buy list.
Kinross
Kinross had a tough run in the wake of its 2010 deal to buy Red Back Mining for US$7 billion.
Gold prices tumbled in the following years, and Kinross was forced to write down the majority of the purchase price, as the Red Back assets never really lived up to expectations.
The Tasiast mine in Mauritania in particular was supposed to be the big prize, but the site has been a disappointment.
That might finally change.
Kinross is investing US$300 million in an expansion of the facility that should boost production by 90% and significantly reduce all-in sustaining costs.
Management is evaluating the merits of a second phase, which could drive cost down even further.
Assuming phase two gets the green light, Tasiast would finally become the crown jewel in the portfolio with annual gold production of about 1.2 million ounces.
The stock has outperformed its peers this year, booking a gain of 18%, despite the steep sell-off in the past month.
The balance sheet is finally in decent shape, and management is focused on growth.
Barrick
Barrick has also been a turnaround story in the past couple of years.
The company reduced debt from US$13 billion to below US$8 billion and saw the stock shoot up from below $10 per share in late 2015 to nearly $30 last summer.
Since then, things have been a bit rough, and Barrick now trades back at the $20 mark.
What’s going on?
The company delivered weaker than expected Q1 2017 numbers and is struggling with issues at its Veladero mine in Argentina.
In addition, Barrick holds a majority stake in Acacia Mining, which has run into some difficulties with its mines in Tanzania. The country’s ban on mineral concentrate exports puts 6% of Barrick’s production guidance in question.
On the positive side, Barrick is generating solid free cash flow and raised the dividend earlier this year.
Should you buy?
Gold is starting to recover after a slide from close to US$1,300 per ounce to just above US$1,200.
Investors should expect further volatility within the range as rate-hike speculation continues to control market swings.
If you believe the long-term outlook is positive for the precious metal, both Kinross and Barrick should do well.
At this point, Barrick might be the more attractive choice. It is the industry’s largest producer with some of the lowest operating costs, and the current issues will eventually get resolved.
Given the extent of the sell-off in the stock, investors might want to consider a small position in the giant while it is out of favour.
